Twitter must be absolutely frightened that Elon Musk will back out of his deal to purchase the company because they have caved to his demand to see the true numbers, and I’m sure it’s not going to look good for them.
The most recent bit of drama in Elon’s attempted takeover of Twitter was that he temporarily put the deal on hold following Twitter’s refusal to prove to him that the number of bot accounts on the platform was indeed less than five percent of all accounts. Describing that breach in a letter, his lawyers said:
“This is a clear material breach of Twitter’s obligations under the merger agreement and Mr. Musk reserves all rights resulting therefrom, including his right not to consummate the transaction and his right to terminate the merger agreement.”
Musk’s lawyers also, in the letter, said:
As Twitter’s prospective owner, Mr. Musk is clearly entitled to the requested data to enable him to prepare for transitioning Twitter’s business to his ownership and to facilitate his transaction financing. To do both, he must have a complete and accurate understanding of the very core of Twitter’s business model—its active user base. In any event, Mr. Musk is not required to explain his rationale for requesting the data, nor submit to the new conditions the company has attempted to impose on his contractual right to the requested data. At this point, Mr. Musk believes Twitter is transparently refusing to comply with its obligations under the merger agreement, which is causing further suspicion that the company is withholding the requested data due to concern for what Mr. Musk’s own analysis of that data will uncover.
If Twitter is confident in its publicized spam estimates, Mr. Musk does not understand the company’s reluctance to allow Mr. Musk to independently evaluate those estimates. As noted in our previous correspondence, Mr. Musk will of course comply with the restrictions provided under Section 6.4, including by ensuring that anyone reviewing the data is bound by a non-disclosure agreement, and Mr. Musk will not retain or otherwise use any competitively sensitive information if the transaction is not consummated.
Well, Twitter apparently decided that the fight wasn’t worth it, as the company just backed down on the issue and announced that it would be handing over data regarding the number of bots on the platform, as the Washington Post reported.
Or, in other words, the powers that be at Twitter absolutely panicked and decided to give Musk everything he wanted:
“Twitter’s board plans to comply with Elon Musk’s demands for internal data by offering access to its full ‘firehose,’ the massive stream of data comprising more than 500 million tweets posted each day […] some two dozen companies pay for access to the trove, which comprises not only a real-time record of tweets but the devices they tweet from, as well as information about the accounts that tweet.”
The number of bot accounts is important for two main reasons, both of which matter to Elon.
The first is that the accounts are annoying and often used for illegal activities. Whether it’s pushing some cryptocurrency scam on unsuspecting victims, harassing people that somehow found themselves in the sights of a person with access to bot swarms, or simply spamming out links, bot accounts are annoying and make use of the platform riskier and less enjoyable, good enough reasons for Elon to want to get rid of them.
But that’s not all. The more bots there are on the platform and are treated as real accounts rather than bots, the more the company is overvalued. Only real users are supposed to be monetizable, in terms of showing them ads, and so only they should count for the valuation of Twitter. If more than 5 percent of accounts are bot accounts, that means that Elon’s offer was overvalued, and thus that he could potentially decrease it, saving himself some cash at a time when Tesla stock has cratered.
And Elon isn’t the only one interested in bot accounts. Texas AG Paxton, wanting to protect Twitter investors and advertisers from the company’s potentially misleading claims about the number of bot accounts, has opened an investigation into the company, saying:
Today I’m investigating Twitter for potentially misleading Texans on the number of its “bot” users. I have a duty to protect Texans if Twitter is misrepresenting how many accounts are fake to drive up their revenue.
AG Paxton also said, in a statement regarding why he’s investigating Twitter and how bots harm investors, users, and advertisers:
“Texans rely on Twitter’s public statements that nearly all its users are real people. It matters not only for regular Twitter users, but also Texas businesses and advertisers who use Twitter for their livelihoods.
“If Twitter is misrepresenting how many accounts are fake to drive up their revenue, I have a duty to protect Texans.”
So now, with pressure on all those fronts, Twitter is backing down and handing over the data, with another point on the board going to Elon in this vicious fight for control over the public square.